FX Strategists at Scotiabank remain neutral/bearish on the pair, expecting it to slip back towards the 1.2720 area.
“Policy-specific messaging was in line with last week’s statement as Gov. Poloz spoke of the need to ‘remain cautious in considering future policy adjustments’ with interest rates expected to ‘move higher over time’. We feel that the market reaction was somewhat overdone as the Gov. suggested that the economy was still operating in line with the January MPR forecast. As such, rate expectations appear relatively low at the moment with OIS pricing just 7bpts of tightening for April and 27bpts by July. We look to a renewed firming in domestic rate expectations and a narrowing in the 2Y U.S.-Canada spread. We maintain a constructive CAD view and look to medium-term strength into the spring/summer period”.
“Bullish momentum signals have softened and DMI’s are confirming a shift in the balance of risk. USDCAD’s latest rally appears to have stalled around the last major retracement level of the March 7- 11 decline around 1.2950. We look to considerable near-term resistance above 1.2880 and anticipate near-term weakness back toward the 9 day MA around 1.2900. Last week’s double top has not been completed and implies a decline toward the 1.2720s”.
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